A Better Legacy: Social Security Reform

About the Author

In his quest for a "legacy," President Clinton has been hoping for
some foreign-policy breakthrough to trumpet, such as a new
arms-control deal with the Russians. But the renewed debate over
Social Security reform shows the president has a better opportunity
within his grasp: to be the president who finally "saves" Social
Security.

For starters, he can spurn the high-decibel scare tactics used
by opponents of reform. He needs to calm the fears of current
retirees by promising their benefits will be guaranteed - or reform
is dead on arrival.

In other words, the president can assure senior citizens that
the debate over Social Security reform isn't about them; it's about
their children and grandchildren. That way, the AARP can leave the
discussion to those who have the biggest stake in making reform
work: the baby boomers and their children who are now themselves
entering the work force.

President Clinton should also tell the American people that
Social Security is not what most of them think it is: a set of
individual, funded retirement accounts that are part of a larger
trust fund from which they will draw benefits when they retire. No,
Social Security is a "pay-as-you-go" program, with the taxes paid
by today's workers used to pay benefits to current retirees. When
the 77 million baby boomers begin retiring in another 10 years,
their benefits will be paid by younger workers. The only trouble
is, when the president's fellow boomers retire, the number of
workers to support them will start dropping, leading to either big
tax increases or benefit cuts in the current program.

And as critics deride any serious reform as inherently "risky,"
the president should explain something else few Americans realize -
that other Western democracies, including Great Britain and
Australia, already have privatized or partially privatized their
pension systems.

Under the British system, workers can remain entirely in the
government-run pension program or they can elect to take part of
their required payroll tax and put that money into an employer's
retirement program or a personal pension plan, similar to an
individual retirement account or a 401(k) plan. Pensioners who
invest in private plans are still covered by Britain's basic
pension system. More than two-thirds of all eligible workers have
taken advantage of the private investment option.

As a result of their reforms, British retirees today are among
the most financially comfortable in the world. The British work
force, meanwhile, has accumulated a stunning 830 billion pounds -
nearly $1.4 trillion - in private pension funds, an amount larger
than the private pension funds of all other European countries
combined.

On an individual basis, British workers are now accumulating
more than twice as much money for retirement as they would have
under the old system. Their investments have been earning an
average of about 10 percent per year above inflation. By contrast,
Chelsea Clinton and the other children of U.S. baby boomers will
actually get back less from Social Security than they pay in taxes
during their working years.

The British system has not been perfect. But Britain's overall
success has encouraged Labor Prime Minister Tony Blair to ask his
Social Security experts to work out the wrinkles, "think the
unthinkable" and expand privatization so British workers can enjoy
even larger retirement incomes.

President Clinton should be encouraging Americans to similarly
"think the unthinkable," since Social Security's financial troubles
make the status quo a far worse choice than any privatization
option. Short of private accounts, the only reform choices are
raising payroll taxes, cutting benefits, or some combination of the
two - any one of which would make a bad deal even worse.

The next generation of American retirees deserves a prosperous
retirement, without imposing a crushing tax burden on their
children. Mr. Clinton can accomplish that, and secure his place in
history, by making Social Security reform the No. 1 domestic
priority of his final months in office.

History will remember such leadership. After all, there's only
one truly "risky" option - and that's doing nothing.

Robert
Moffit is Director of Domestic Dolicy studies at The
Heritage Foundation (www.heritage.org), a
Washington-based public policy research institute.